By Kaitlyn Kiernan and Melodie Warner
NEW YORK--The Dow Jones Industrial Average will become a little
more health sector-heavy after the close of trading on Sept. 21,
when insurer UnitedHealth Group Inc. (UNH) will replace Kraft Foods
Inc. (KFT) in the 30-component index.
The shift comes as Kraft Foods, the global-snacks company,
begins trading as Mondelez International Inc. It will also make
UnitedHealth the second insurer in the blue-chip index, joining
Travelers Companies Inc. (TRV), which was added to the Dow during
its last shake-up in June 2009.
"The shift reflects the growing importance of health-care
expenses in the U.S. economy," said Peter Jankovskis, co-chief
investment officer at Oakbrook Investments. "It reflects shifts
that have already taken place within the U.S. and so the change
makes sense in terms of what the Dow is trying to do as a
30-component representation of the U.S economy."
UnitedHealth, the biggest managed-care company by revenue and
membership, will bring added diversification to the health-care
aspect of the Dow, while reflecting the growing importance of
health-care spending in the U.S., S&P Dow Jones Indices said in
a release Friday. Currently, the health-care space in the Dow Jones
Industrial Average is entirely represented by pharmaceutical
companies with components Johnson & Johnson (JNJ), Merck &
Co. Inc. (MRK) and Pfizer Inc. (PFE).
S&P Dow Jones Indices said the Dow Jones Averages Index
Committee believes Mondelez's reduced market capitalization and
projected lower percentage of revenue makes the company less
representative of the U.S. large-cap market space.
Kraft is separating into two publicly traded companies: the
global-snacks company Mondelez and the North American grocery
business Kraft Foods Group Inc. The split is scheduled for Oct. 1.
Earlier this month, Kraft unveiled its strategies for the
companies, but the forecast for 2013 earnings fell short of
expectations.
Meanwhile, UnitedHealth has seen its profits grow as the
uncertain U.S. economy caused many consumers to avoid hospitals and
doctors' offices in hopes of saving money. The company reported its
second-quarter earnings rose 5.5% as the health insurer's revenue
jumped 8%.
With the Dow's unique weighting--with its 30 components weighted
by stock price, rather than market value-the swap of UnitedHealth
for Kraft makes sense in terms of the similarity in share price,
according to Nicholas Colas, chief market strategist at ConvergEx
Group.
"Price has to be a consideration because that is the weighting,"
Mr. Colas said. "It's a logical swap because it doesn't create too
much of a disturbance in the weightings of the other
components."
Kraft finished at $40.13 on Thursday, while UnitedHealth closed
at $53.89.
-Write to Kaitlyn Kiernan at kaitlyn.kiernan@dowjones.com and
Melodie Warner at melodie.warner@dowjones.com
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